5 Questions for Roger Kafker

TA Associates today announced that it has acquired a minority stake in K2 Advisors, a $5.5 billion hedge fund-of-funds manager. So we’ve got 5 Questions for Roger Kafker, a TA managing director who will sit on the K2 board:

1. Could this deal be a precursor to TA Associates launching its own hedge fund products?

Kafker: That would depend on if we found a team of managers who had such a unique hedge fund product and a compatible culture that we’d want them to be part of TA. But it shouldn’t be viewed as a precursor. Right now we generally feel that it’s hard enough to find good private equity opportunities that can help produce top-tier returns for LPs.

2. Was TA searching for a hedge fund platform, or was this deal more of a one-off opportunity?

Kafker: We’ve been looking for a hedge fund-of-funds for about two years. Specifically, we were looking for one with a differentiated strategy from just providing access, but most of them didn’t have that. What we liked about K2 was its focus on transparency and the fact that its risk management system and portfolio construction were very differentiated and attractive from an asset management perspective. K2 also is unique in the nature of its client base and its products.

3. Are some of your LPs already K2 clients? If so, have they raised any over-exposure concerns?

Kafker: Some of our LPs did have overlap, so we did due diligence with them to see why they were invested with K2. But K2’s assets are so different from ours that I don’t think LPs are concerned. K2 funds are primarily long-short equity and low-volatility portfolios, which means zero overlap in terms of portfolio construction. Instead, we think this will be additive to any LP looking to add to their alternative holdings… We will introduce K2 to LPs who are interested, but won’t be selling K2 products directly.

4. The press release refers to a “minority” stake. Will this be a “significant minority” position and, either way, what will TA bring to K2?

Kafker: It is a significant minority stake. We will be on the board – both Mike Wilson and I – and we hope to encourage them to rapidly grow their business. K2 has taken assets from $1 billion to $5.5 billion over the past five years, and we’d like to see the business continue to grow in multiples.

As the industry consolidates, we want K2 to be an platform that can acquire hedge fund-of-funds that are not of sufficient scale to survive independently. We’ll certainly be on the lookout for additional teams and products.

5. The hedge fund industry could soon be facing new regulatory oversight. Was that a concern before pulling the trigger?

Kafker: K2 has been a leader in transparency and exposure, and therefore would actually benefit from additional regulatory scrutiny of hedge funds, when compared to smaller firms. It is already running its business in an institutional manner.